The Bank of Japan rocked currency markets this evening by widening the target range under its yield curve control program – a move that could sap liquidity and raise worldwide borrowing costs as it alters the global funding landscape.

In a statement accompanying its latest rate decision, the central bank announced it would allow 10-year bond yields to rise to 0.50 percent, up from 0.25 percent previously – but also committed to stepping up the pace of asset purchases, seemingly hoping to improve market functioning while opening the door to tighter policy settings.

Although speculation had been building around the possibility of a policy shift for months, very few – if any – market participants expected a shift before current Governor Haruhiko Kuroda’s term comes to an end in April. Although falling energy and commodity prices are putting pressure on inflation rates, the country’s core measure is running near four-decade highs, the yen remains deeply depressed, and the government expects wage demands to spike upward in coming months.

More broadly, the Bank of Japan’s shift could trigger a reversal in worldwide capital flows, with a small-but-globally-meaningful portion of the country’s $3 trillion foreign asset base heading home. Speculators with yen-funded carry trades are likely to close out their positions, and retail investors could unwind their trades as well, triggering unruly moves in currency markets.

As we go to pixels, the dollar is weakening and Treasury yields are moving upward. The euro, pound, and Swiss franc are all on the defensive, but yields in rate-sensitive jurisdictions like Canada and Australia could be next to kick higher, generating deeper currency weakness into an already liquidity-thinned year end.